Beware of Your Spouse's Potential Bankruptcy

On behalf of McAdams Law on Monday, May 16, 2011.

In divorce proceedings, bankruptcy is a potential threat to your future financial stability if you depend on your spouse for support and have no means of generating income independently. A financial professional's economic analysis can spot the warning signals. But even if you don't suspect that your spouse is planning to file bankruptcy, you should discuss the possibility with your attorney so you can be as well prepared as possible. A potential bankruptcy can make a big difference in the negotiation and settlement strategy he or she pursues on your behalf. If bankruptcy looms on the horizon, it may be better to negotiate for a larger share of the marital assets in lieu of future income. If there isn't enough property of value, then at least you will want to characterize the payments in the most advantageous way. Child support cannot be discharged with a bankruptcy, so higher payments in this category have more legal protection. Spousal support can be structured so that it is not taxable income to you, and cannot be deducted by your spouse. These and other strategies can provide better financial protection, if bankruptcy is anticipated as a real possibility.

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